Cheating With Partial Options Hedges

By Bill Luby:
[The following first appeared in the May 2011 edition of Expiring Monthly: The Option Traders Journal. I thought I would share it because of the strong positive feedback I received as well as the large number of questions I have recently fielded about hedges.]
After more than two years of a surging bull market that has seen the major stock market indices more than double, it is not surprising that many investors are becoming more concerned about protecting existing profits than finding ways to increase existing account balances. As someone who makes a living trading options, you would think that finding a way to hedge my portfolio using options ought to be second nature by now. In fact, I have always placed more emphasis on offense than defense, not because I underestimate the importance of risk management, but because I generally find the opportunity cost of portfolio protection to beComplete Story »

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No, it is not zero, not even if government borrowing rates were literally at zero. Yet I’ve seen that claim a few dozen times in the last year or two, so let’s walk through some arguments that were fully standard by the 1970s.
Opportunity cost is ultimately defined in real resource terms, converted into value. So if the government borrows more money and mobilizes robots to do some work, that means fewer robots to do work elsewhere.

This post Here’s How You’ll Profit From the Worst Trading Month of the Year… appeared first on Daily Reckoning.
The month of August hasn’t been very kind to investors recently.
But that’s all about to change…
The slowest trading month of the year might have begun with a whisper. But if recent history is any indication, it’ll end with a bang.
Let me explain…

Many readers have inquired about how much of their portfolio should actually be hedged to reach 100% portfolio protection. This is not an easy question to answer as each portfolio is unique. The particular portfolio may include stocks, bonds, ETFs, mutual funds, options, REITs and MLPs. Some of these investments (such as defensive stocks) are inherently partial hedges and need not be fully considered in hedging a portfolio.

I was in Las Vegas last week for the Value Investing Congress. The irony of that statement is not lost on me. Then again, the stock market can often seem like a casino — or worse, a rigged casino. Especially with all this talk about high-frequency trading, or HFT.
There is a lot of buzz about HFT. You almost can’t open a financial publication without finding something about it. But how relevant is it to you? Should you care?
These are the questions I sit down to answer now.